Letter of Intent (LOI)

A Letter of Intent (LOI) is an informal written document in foreign trade through which the buyer and seller reach agreement on the main terms of a transaction before a formal contract is signed. Its core meaning is to express the initial willingness of both parties to cooperate, rather than serving as a legally binding final agreement. Use cases include: bulk commodity procurement, long-term supply agreements, agency negotiations, joint ventures and cooperation, etc. It is usually used after inquiry and offer, and before the formal contract. Points to note: An LOI generally expressly states that 'it is not legally binding except for the confidentiality clause,' but if its content is too specific and the intentions of both parties are clear, it may be deemed binding by a court; care should be taken not to confuse an LOI with a legally effective Contract or a Memorandum of Understanding (MOU). An MOU is usually more formal than an LOI but may likewise be non-binding. Unlike a Sales Confirmation, which is a formal contract, an LOI is not. It is advisable to specify in the LOI the validity period, exclusive negotiation clause, and termination conditions to protect one's own interests.